Where to Entrust Your Money

Getting down to the core of it, investing in stocks means you entrust people that work at public companies to get a better return on your money than you would be able to do on your own. In other words, when you have extra money sitting around, you can either spend it, put it in an interest bearing product (CD's, savings account, etc) or put it to use in another vehicle like stocks to try and get a better return. This entails higher risk obviously.

But with all of today's talks about bailout plans of financial institutions by the government, failing banks and investment companies, and a failing credit system, why should anybody trust other companies to get a better return than I can?

Okay, I'm being a little extreme, but all of this turmoil definitely has a negative reflection on the viability of blindly trusting other companies to do better than you can on your own in terms of getting return on investment. For better or worse the stock market is still the best system we have for building wealth, but now more than ever it's important to realize that you're still risking your trust in someone else to excel. Buyer beware and let's hope this whole thing shakes out soon and proves to be an improvement over where we've been.

A Dumb Economics/Financial Question

I follow the economy pretty regularly, though I have no formal training in it. I like to learn about the world of finance, without delving deep into complex formulas and numbers. Call me a minor league financial fan, if you will. Not quite ready for the big leagues, but definitely way more advanced than tee ball.

So here's my dumb question:

In a market like the one we're facing today, where virtually every sector is losing money... WHO is making money?

I don't think anybody would argue with the fact that the industries of housing, banking, retail, manufacturing, and so on are struggling right now, both in America and in many other countries. On the flip side, energy companies have done well and perhaps a few other sectors.

But ultimately, it seems like a LOT of money has been lost all across the stock market and in the housing market and elsewhere, and I'm not quite grasping as to where it's all going. Consumers are getting squeezed by higher prices all over the place (read: inflation), companies are starting to cut back on employment and production it seems, houses still are not selling all that well, savings rates are low so holding money in a safe account doesn't reap big rewards, and on and on.

So I ask again, WHO is on the other side of the transaction, making money right now? Average John and Suzy homeowner, stock investor, employer, and consumer sure aren't making money... so where does it all go???

-Curious in Jersey

Stock Market Advice: Ride It Out!

Now I do not profess to be a financial wiz (nor is this post intended to be interpreted as professional advice and all information herein is strictly this writer's opinion... ha! That's my legalese for this financial post), but I've heard a lot of people worrying about the U.S. stock market lately. My opinion: save the energy and channel your worrying into something more productive.

The market has been extremely volatile of late and from all indications it seems like this trend will continue for a while, at least until the mortgage situation, strength of the dollar, and consumer spending show signs of improvement. One day the market is up big, the next day it plummets. It's a line-graph maker's dream... or a financial wizard's hell.

What this means to the average investor is... just ride it out. Unless you have to use the money you have invested in the market sometime soon, in which case you shouldn't have your money in the stock market to begin with, you're better off just rolling with the ups and downs. Over the long run, if you're invested in strong stocks and/or mutual funds, you'll see the returns flow your way while everybody else is busy trying to time the market. It ain't worth the aggravation to do this, and it ain't worth all of the brokerage commissions you'll be dishing out. So just hold on tight, make sure you're invested in the companies you feel are the best (which is always true regardless of the market's short term trends), and let things handle themselves. You'll do yourself a world of good. And you can use all of that "worrying energy" to improve your life in some other way.

Good luck and good investing!